Microfinance in Cambodia: Development, Challenges, and Prospects

Microfinance is considered one of the effective tools in reducing poverty. In the last two decades, Cambodian microfinance industry has made rapid growth in asset, loan and deposit. Microfinance institutions have extended their services to all corner of the country and some have transformed from a donor-assisted NGO program to a full-fledged commercial bank. During the process of the growth of the industry, many borrowers have benefited and been able to move out of poverty while other become over-indebted and lose their asset due to factors such as low financial literacy and the ease to access multiple sources of loan. At the national level, financing microfinance may crowd out the fund for financing small and medium enterprises, and other types of business. Various government response such as the initiative to improve financial literacy and the imposition of interest cap may help reduce the problem of over-indebtedness at the individual borrower level. However, for long run development, they also should consider addressing the trade-off between allocating scarce fund between micro businesses, and small and medium enterprises.